TORONTO • Heather Reisman says there is plenty of life left in Indigo Books & Music Inc. after the sale of its Kobo e-book business last year, but the retailer’s chief executive shared little new information about her vision for the future at the company’s annual general meeting Wednesday.

Indigo is deeply engaged in the business of transforming from what we were pre- e-books to a time where we will thrive again

The country’s biggest bookseller posted robust net earnings in the year and fourth quarter ended March 31 thanks to the sale of its 51% stake in the Kobo business to Tokyo-based Rakuten Inc., but recorded a loss from continuing operations during the period.

“Indigo is deeply engaged in the business of transforming from what we were pre- e-books to a time where we will thrive again,” Ms. Reisman told a small group of attendees at the Toronto meeting. “The book business is still a thriving business in every respect, [with an] increasing number of people reading digitally and physically, which augurs well for Indigo.”

Nevertheless, digital books are having an increasing impact on the market, accounting for about 18% of book sales in the industry, and Indigo cited projections that within five years that number could rise to 50%. The investment in Kobo was viewed as a way to gain a solid foothold in the e-book business, but Ms. Reisman said when the sale was announced last fall that the Japanese firm was in a good position to invest the $100-million to $150-million that Kobo would need this year to grow and advance its technology.[np-related]

Indigo for several years has been shifting its merchandise mix into more lifestyle and cultural products — stationery, giftware and private label home goods, baby gifts and accessories, and a burgeoning kids’ department. It included toys, games, costumes and educational products at 62 of its 97 superstores in the latest fiscal year compared with 53 the prior year.

“Each of these businesses is growing very nicely,” said Ms. Reisman, who owns 60.8% of the company’s shares with her husband, Onex Corp. CEO Gerry Schwartz. “We fully expect that our offering in home, baby and kids will grow meaningfully in store and online” as digital book sales encroach further into the retail and online book markets.

Three-quarters of Indigo’s revenue, however, is still derived from book sales, while 25% of sales come from general merchandise. That mix is reflected on average in the store square footage allocated to those categories. In the last fiscal year, revenue fell 2.3% to $934-million due to lower physical book sales. Same-store sales at superstores revenue fell 1.9%, and fell 0.8% at its 143 smaller format outlets. Online sales were up 2.9% to $93.2-million.

“The best case scenario would be if their sales per square foot were to stop going down and the margins start going up,” said Bob Gibson, retail analyst at Octagon Capital Corp. “But the same-store sales numbers are not bad, so they are clearly selling the baby toys and soaps and picture frames.”

Giftware can be a tough market, said Wendy Evans, president at Toronto retail consultancy Evans & Co. Consultants Inc. “There are so many retailers involved in it, including major department stores, so you have to have a great point of view and Heather Reisman’s is very good. But there is an awful lot of space in those stores. I think it is difficult to replace the book sales with gifts.”

Sales of regular books in Canada declined by 10% in dollars last year and by 11% in volume, according to research from BookNet Canada, which assesses retail book sales quarterly among a control group of Canadian retailers. That was a steeper decline than 2010, when the market was down 3.2% in dollars and 3% in volume.